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Does credit crunch investments down? New evidence on the real effects of the bank-lending channel

Federico Cingano, Francesco Manaresi () and Enrico Sette

No 91, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper shows evidence on the real effects of the bank lending channel exploiting the dramatic 2007 liquidity drought in interbank markets as a source of variation in banks' credit supply. For a large sample of Italian firms we combine information on firm-bank credit relationships, firms and banks balance sheet data, and estimate both the direct effect of the liquidity drought on the investment rate and the sensitivity to bank credit of investment (as well as of other firms outcomes) in 2007-10. We find that: (i) pre-crisis exposure to the interbank markets does predict banks subsequent credit supply (ii) banks exposure also has a significant direct impact on firms investment rate, accounting for more than 40% of the negative trend in investment observed in the sample; (iii) firms' investments are highly sensitive to bank credit: a 10 percentage point fall in credit growth reduces the investment rate by 8-14 points over four years, depending on the definition of the credit variable; (iv) credit shocks have a significant impact on broader economic activity, lowering firms' value added, employment and intermediate inputs purchases; we also find evidence of its propagation through a contraction in the supply of trade credit by firms.

Keywords: Bank Lending Channel; Corporate investments; Corporate liquidit; Financial crisis (search for similar items in EconPapers)
JEL-codes: E22 E44 G01 G21 G32 (search for similar items in EconPapers)
Pages: 45
Date: 2013-12
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Journal Article: Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel (2016) Downloads
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